Iraqi soldiers moved to capture oilfields and facilities from Kurdish forces and surrounded the disputed city of Kirkuk on Monday, escalating a crisis triggered by last month’s independence referendum in the autonomous Kurdistan region.

Iraqi and Kurdish officials said armoured forces were advancing around the south of the oil-rich city, which has long been one of the country’s deepest faultlines and is claimed by both the Kurdistan Regional Government and Baghdad.

Iraqi forces had taken over the headquarters of the Baghdad-controlled North Oil Company, a KRG official told the Financial Times. The Iraqi military said it also controlled Kirkuk airport.

“Iraqi forces and Popular Mobilization Forces [Shia militia] are now advancing from Taza, south of Kirkuk, in a major operation; their intention is to enter the city and take over [the] K1 base and oilfields,” said the KRG’s security council.

Tensions in the region have been escalating since the KRG went ahead with its independence referendum last month, despite fierce opposition from Baghdad, Iran, Turkey and the US. Regional powers fear it will embolden Kurds in their countries to push for greater autonomy and undermine the fight against Isis.

The crisis, which helped drive oil prices above $58 a barrel, pits US allies against each other as Washington has provided military aid to both the Iraqi military and Kurdish forces to help in the battle against the jihadi group.

The KRG had gradually gained control of Kirkuk after the 2003 US invasion toppled Saddam Hussein. The peshmerga, the KRG’s fighting force, then moved into the city, after Isis swept through northern Iraq in 2014. It is one of 15 disputed territories claimed by the KRG and Baghdad that were included in the referendum.

Residents said they could hear sporadic clashes and said many people had fled Kirkuk.

“The city has practically been emptied. I would estimate about 60 per cent have left. The city is now surrounded by the Iraqi army and police and they are now entering the NOC headquarters,” said Ali Mehdi, leader of the Iraqi Turkmen Front, a political movement, in Kirkuk. “We have seen gunmen on the streets. Some of them are armed civilians, others are a peshmerga [Kurdish forces].”

A senior Kurdish official said the fighting on Monday started south of Kirkuk overnight, with peshmerga forces striking four vehicles belonging to the PMF. Some of the vehicles struck were US-made Abrams tanks, he said.

The official said 50 tanks and armoured vehicles were heading towards Kirkuk.

Reuters cited two Iraqi commanders saying their orders were to “secure the surroundings” of the city. Mr Abadi called on Kurdish peshmerga fighters to operate under Iraqi federal authority.

Hemin Hawrami, a senior adviser to Masoud Barzani, KRG president, told the Financial Times that the peshmerga forces would defend the city.

“We have orders, if they come close, all peshmerga forces will respond very strongly,” Mr Hawrami said.

He added that the KRG president had held talks on Sunday with Muhammad Fuad Masum, the Iraqi president, that aimed to resolve the stand-off, saying that it sought “peace and dialogue”.

“It seems that Iraqi government and PMF made their decision to launch the offensive without even waiting for President Masum to go back to Baghdad tomorrow to take our proposals for talks,” Mr Hawrami said.

In the early hours of Monday, Iraqi state television reported that the army had taken control of “vast areas” around Kirkuk without opposition from the peshmerga, adding that Mr Abadi had given orders to the security forces “to impose security in Kirkuk in co-operation with the population and the peshmerga”.

The Kurdish region exports about 550,000 barrels a day of crude oil, including from fields operated by the federal North Oil Company.